FTSE 350 Review: Builders’ merchants offer big discounts

Shares first fell as inflation rose and it became clear that a squeeze on disposable income would curb DIY spending. They then dropped further as mortgage rates jumped, which choked off housing market demand and led to several housebuilders slowing project starts. Thankfully, however, the rampant raw materials and transport cost inflation experienced at the start of the year eased as it ended. 

The key question now is whether these companies have been oversold. A 10 per cent jump in the value of the FTSE 350 construction and materials index since the start of the year suggest that some investors think they have. 

An improving outlook for the world economy since China’s reopening has lifted the global consumption outlook, according to UBS’s chief investment officer, Mark Haefele. Broker Liberum predicts an average 20 per cent return for stocks in the sector this year, arguing that the market has “priced in more earnings downgrade(s) than can reasonably be expected in the coming recession”. 

But those best placed to capitalise on a rebound might not necessarily be the ones whose shares have declined the most. 

Manufacturers such as Ibstock (IBST), whose shares fell by a quarter last year, still face energy price volatility risks, and weak consumer sentiment could yet prove to be a drag on the distributors, even though transport and shipping costs have eased. 

Contractors, however, seem less of a risky bet after the government renewed its commitment to the £600bn infrastructure project pipeline in November's Autumn Statement.